Buy with savings or PCP?

mikepoole

We currently have a pot of savings sat in a building society not earning much interest.

We have decided to buy a brand new car and I was wondering if people could offer their opinion with regard to the best option to take. We basically would like to choose from one of the two...

1 - use a portion of our savings to purchase the car outright
or
2 - use the PCP option and pay a small deposit, suffer monthly payments over 3 years and then choose to buy the car or not with a balloon payment at the end

The PCP option has an APR of 6.9% built in to the monthly payment, so we are worried we are paying this interest whilst not getting much back on our savings.

We have always been wary of unforseen events and like to have a certain amount in our savings as a buffer. The savings could always be built back up by saving the amount we would have paid as the PCP amount each month

Basically, is it better to pay it all upfront in one go and own the car or use PCP to pay monthly amounts (with interest) and then decide wether or not to keep the car

All replies gratefully received

Many thanks

Mike

andrewf75

Buying outright makes more sense for everything IMO especially at a time when your money is not earning any interest.

And I'd buy nearly new rather than brand new, because a car loses thousands almost instantly.

InsideInsurance

Generally getting into debt to avoid spending low interest earning savings is a bit silly if the debt is at a higher interest rate than your savings (esp as you also pay tax on your savings interest).

There are obviously potential exceptions to this such as of you are self employed with volatile/ seasonal earnings so may have greater need of a safety net of savings etc.

Of cause you also need to check the prices they'll sell the car at with cash -v- finance. In my, limited, experience cash tends to be a slightly higher price than dealer provided finance as you're limiting their revenue streams.

da_rule

If your savings are earning more than the interest rate on the loan (very unlikely) then take the loan. If the loan is charging more interest than you're making on your savings then use your savings.

Prothet_of_Doom

andrewf75 wrote: »

Buying outright makes more sense for everything IMO especially at a time when your money is not earning any interest.

And I'd buy nearly new rather than brand new, because a car loses thousands almost instantly.

think SHTF for a minute.

The loss of the buffer is the issue I think. With the PCP you are commited to making payments, so you'd have find that out of those savings. If you have too much savings, you loose benefits, and if you don't own the car, you can't flog it to release some capital.
So I'd say Use the cash.

with regards to the new vs nearly new? Well yes but someone has to buy new cars, and it's always nice to know it's only been to the redline once

(as it goes across the docks onto the ship:rotfl:)

Herzlos

The interest you pay will far exceed the interest you make, so paying with savings is the better idea.

However, if you're looking at new you may get a much better deal from finance (in terms of dealer contributions), so it might make sense to finance *some* of the amount in order to get more off the list price. But in that case you'd want the deposit (from savings) to be as high as they'll allow, and finance the rest.

jimjames

Prothet_of_Doom wrote: »

think SHTF for a minute.

The loss of the buffer is the issue I think. With the PCP you are commited to making payments, so you'd have find that out of those savings. If you have too much savings, you loose benefits, and if you don't own the car, you can't flog it to release some capital.
So I'd say Use the cash.

with regards to the new vs nearly new? Well yes but someone has to buy new cars, and it's always nice to know it's only been to the redline once

(as it goes across the docks onto the ship:rotfl:)

If all your savings buffer is being used up to buy a car, is it the right car to buy? Would buying nearly new allow you to keep some more buffer available?

If you are paying 6% interest on the debt and getting 1% interest on your savings then from a money saving viewpoint it makes no sense to get the loan.

ioscorpio

I had the same decision to make a couple of weeks ago when I bought a 2 year old Hyundai i10 and decided to buy with cash. As I was doing the rounds at the various garages, Skoda were doing a 0% PCP, but I did not think that the Citigo was good value for money.

daveyjp

Borrow the money from yourself and pay the PCP amount back into savings every month.

InsideInsurance

ioscorpio wrote: »

Skoda were doing a 0% PCP, but I did not think that the Citigo was good value for money.

Well you have to remember that they have to inflate its price to cover the interest free credit

disco.stu

On a site like this, you will always get people telling you to pay cash and avoid interest. And in terms of minimising the total cost of the vehicle, they are absolutely correct.

However, that is not necessarily the best solution for your situation. A dealer will give you (they are compelled to by law, although you may have to ask for it) a complete breakdown of how much the car will cost in total once you have paid it off. If it is most advantageous for you to pay it all in cash, then hooray. However, if it suits you to finance some or all of the vehicle and use your cash for other purposes, then that's fine.

As long as you take the time to understand exactly what you are committing to, then you will be able to make the best decision for you.